7.Despite their concerns, on May 20, 2009, KPMG AZSA issued a clean opinion on the 2009 financial statements. The very next day, Kikukawa informed KPMG AZSA that they would not be renewed as Olympus's auditors. This was primarily due to the difference in opinion between KPMG AZSA and Olympus management about the appropriate accounting treatment of various acquisition-related costs, which was perceived as "overstepping" the auditors' role and "meddling" in the company's affairs.

a.Summarize the concerns that KPMG AZSA had regarding Olympus's acquisition-related costs. How did these affect audit risk?

b.The Japanese regulator noted that the exchange between KPMG AZSA and Ernst & Young ShinNihon did not comply with the spirit of Japanese guidance on auditor communications. Discuss the exchange between KPMG AZSA and Ernst & Young ShinNihon in the context of U.S. Generally Accepted Auditing Standards specifying the responsibilities of the predecessor and successor auditors.